China growth to ease in Q4 after strong year; further slowdown expected in 2018 – Forex News Preview
January 16, 2018 4:26 pm
China’s economy is expected to slow slightly in the fourth quarter of 2017 as government measures to curb pollution and deleverage highly indebted corporations and regional authorities take hold. The slowdown is expected to continue into 2018 as the government winds down the fiscal stimulus that helped 2017 growth beat its own target of 6.5%.
The GDP data due on Thursday is forecast to show the economy growing at an annual rate of 6.7% in the final three months of 2017 – slightly weaker than the third quarter’s 6.8% rate. For the year as a whole, the economy likely grew by 6.8%, which would mark the first acceleration in yearly GDP growth since 2010.
Following the stock market crash and the plunge in exports in 2015, much of the growth during the recovery has been driven by higher borrowing. However, a chunk of this lending has been taking place within the shadow banking system, which the government is keen on curbing together with other risky practices in China’s financial services sector. Moreover, the government is taking a tougher stance on heavily polluting industries, which in addition, face streamlining under reform plans to reduce industrial overcapacity.
These measures likely weighed on growth in the fourth quarter and could prove a further drag in 2018 as China prioritizes quality growth over quantity. The emphasis on “high-quality growth” was reiterated at the Central Economic Work Conference in December. However, fears of a hard landing could lead the government to ease back on its clampdown on risky lending, according to an advisor to the People’s Bank of China. Recent numbers on credit growth suggest the government’s efforts have already started in succeeding to significantly reduce lending in the shadow banking sector.
Other data to be released on Thursday is also expected to point to growth decelerating somewhat towards the end of the year. Industrial output is forecast to rise by 6.0% year-on-year in December versus 6.1% in the prior month. Investment growth in urban areas is expected to moderate to a fresh 18-year low of 7.1%, while retail sales are forecast to increase by 10.1% in December, down from 10.2% in November.
Better-than-expected figures could provide the PBOC with the confidence to allow the further appreciation of the yuan, which on Monday hit a two-year high of 6.4168 to the US dollar. Further firmer daily fixings by the PBOC in the coming weeks could the take dollar/yuan pair to the 6.40 level. On the other hand, disappointing numbers could alert the central bank to drive the currency back nearer the key 6.50 level.
China’s economy is expected to slow slightly in the fourth quarter of 2017 as government measures to curb pollution and deleverage highly indebted corporations and regional authorities take hold. The slowdown is expected to continue into 2018 as the government winds down the fiscal stimulus that helped 2017 growth beat its own target of 6.5%.
The GDP data due on Thursday is forecast to show the economy growing at an annual rate of 6.7% in the final three months of 2017 – slightly weaker than the third quarter’s 6.8% rate. For the year as a whole, the economy likely grew by 6.8%, which would mark the first acceleration in yearly GDP growth since 2010.
Following the stock market crash and the plunge in exports in 2015, much of the growth during the recovery has been driven by higher borrowing. However, a chunk of this lending has been taking place within the shadow banking system, which the government is keen on curbing together with other risky practices in China’s financial services sector. Moreover, the government is taking a tougher stance on heavily polluting industries, which in addition, face streamlining under reform plans to reduce industrial overcapacity.
These measures likely weighed on growth in the fourth quarter and could prove a further drag in 2018 as China prioritizes quality growth over quantity. The emphasis on “high-quality growth” was reiterated at the Central Economic Work Conference in December. However, fears of a hard landing could lead the government to ease back on its clampdown on risky lending, according to an advisor to the People’s Bank of China. Recent numbers on credit growth suggest the government’s efforts have already started in succeeding to significantly reduce lending in the shadow banking sector.
Other data to be released on Thursday is also expected to point to growth decelerating somewhat towards the end of the year. Industrial output is forecast to rise by 6.0% year-on-year in December versus 6.1% in the prior month. Investment growth in urban areas is expected to moderate to a fresh 18-year low of 7.1%, while retail sales are forecast to increase by 10.1% in December, down from 10.2% in November.
Better-than-expected figures could provide the PBOC with the confidence to allow the further appreciation of the yuan, which on Monday hit a two-year high of 6.4168 to the US dollar. Further firmer daily fixings by the PBOC in the coming weeks could the take dollar/yuan pair to the 6.40 level. On the other hand, disappointing numbers could alert the central bank to drive the currency back nearer the key 6.50 level.
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